Many people like roller-coaster rides, but few like them when it comes to the price of things they buy. The deregulation of the electric utility industry has unleashed a storm of price spikes that may well give us a very bumpy ride for the next several years.

Electric cooperatives are preparing for deregulation by forming new cooperative alliances. It's a tradition rooted in the sixth cooperative principle - cooperation among co-ops. This doesn't mean that co-ops will have to give up their autonomy and independence, or the local control that makes them responsive to local consumer needs.

New alliances between co-ops will enable them to increase their market power in a competitive marketplace, and will allow them to band together to hire the expertise they need to provide new services to their members.

ACES will shoot down price spikes

"With this network, we'll be able to sell excess power from any one area to a cooperative that needs power."

The Alliance for Cooperative Energy Services (ACES) is a good example of a co-op alliance that will have far-reaching benefits for co-op members. ACES was formed by Southern Illinois Power Cooperative (SIPC) of Marion, and three other regional generation and transmission (G&T) cooperatives. ACES is helping the four co-ops manage the risks and opportunities of a deregulated power market. Together, the ACES co-ops represent 71 local co-ops, serving nearly one million member-consumers.

Harold Dycus of Carbondale is a member of the board of directors of Egyptian Electric Cooperative, Steeleville, and SIPC. He also serves as secretary on the ACES board. Dycus says that ACES may grow into a nationwide G&T cooperative network.

"With this network, we'll be able to sell excess power from any one area to a cooperative that needs power. It's really a power exchange. We're also talking about the natural gas market, which is very important because a lot of the new power is going to

10 ILLINOIS COUNTRY LIVING NOVEMBER 2000

"This is the best opportunity for co-ops to work together to benefit the entire United States and serve the long-term interests of our co-op members."

be fueled by natural gas. We have to have that product's price tied down, too," says Dycus.

Whether it's electricity or natural gas, Dycus emphasizes that energy prices for co-op members will depend on the market power and size of purchase co-ops can bring to the marketplace. "This is the best opportunity for co-ops to work together to benefit the entire United States and serve the long-term interests of our co-op members," he adds. The power market is very volatile, with spot market prices jumping as much as 17,976 percent from the low to the high price. That makes the oil market, with its recent 146 percent swing, look pretty tame. It's important, in today's power market, to watch prices minute by minute, 24 hours a day, seven days a week. Market fluctuations, especially during summer peak months, can literally bankrupt a utility.

"ACES gives us that ability," says Dycus. "And we recently added meteorology expertise to the equation, because the weather has an incredible impact on power market needs."

Tim Reeves, president and general manager of SIPC, notes that risks are far greater now than they have ever been. "ACES is helping us manage those risks by constantly watching the market. When we have power to sell, they know where to sell it and how much it's worth. And if one of our generating units goes down and we have to buy power, they'll help us buy without overpaying."

Nationally, co-ops own about one-half of their generation needs, and they buy the rest from other utilities. The normal price has been between $25 and $35 per megawatt-hour (mwh), says David Tudor, president/CEO of ACES.

"You used to be able to buy from your neighboring utility and the price was virtually the same," says Tudor. "That's no longer the case. Power is traded in a deregulated market just like stocks, and with the same risk. The power industry has gone from being a very stable business to a very unstable one. Risk has grown. Last summer we had prices as high as $9,000 per mwh (or $9 per kilowatt hour). If you figure how many hours it would take for you to go out of business at that price, it's not very long."

ACES is not just about prices, Tudor says. It's also about reliability. "Retail unbundling is moving forward. If co-ops don't have a strong wholesale power provider, it'll be very difficult for them to compete. This allows us to work together and develop a strong regional and national presence.

"This does not mean co-ops are merging. It means that they're working together to maintain their independence, while still being able to manage the new market risks."

NOVEMBER 2000 ILLINOIS COUNTRY LIVING 11

Imagine having your own power plant, about the size of a refrigerator, sitting outside your home and supplying all your power needs with no blinks, voltage sags or power outages. It's called a fuel cell, and electric cooperatives are taking the lead in developing this new distributed power technology.

In 1998 electric cooperatives formed an energy services cooperative called Energy Co-Opportunity (ECO) to help co-ops develop and provide fuel cells, solar power, natural gas, propane, microturbines and other new energy technology.

Tom Hentz, president/CEO of EnerStar Power, Paris, and vice-chairman of ECO, says, "We are very excited about the technology and progress this will bring to our members." EnerStar is one of eight electric cooperatives nationally that hosted an alpha-test fuel cell from H Power. An alpha unit is an early version, designed as a proof- of-concept vehicle, rather than a "real" one. They are intended to locate and identify trouble spots, so they can be corrected in later models. Essentially, alpha units are intended to be tested to destruction to find all possible weak spots.

ECO has partnered with H Power, a leading fuel cell manufacturer, to develop and market a fuel cell that will meet the needs of co-ops and their members.

EnerStar Power is also the first electric cooperative to become an Alternative Retail Electric Supplier (ARES) and is marketing power to commercial customers in Illinois. In fact, EnerStar is the first ARES to win a business away from AmerenCIPS. Almost all of the switching of power suppliers has taken place in the Chicago area where Commonwealth Edison provides power at higher rates than most other utilities in the state.

Hentz believes diversifying the co-op's power supply sources is the most important thing a cooperative can do in preparing for deregulation. EnerStar is not only involved in testing fuel cells, but will also include microturbines as another source of distributed generation. "Managing our power supply portfolio is our most important job. To manage the risks and cost of power supply, our portfolio will include a mix of buying market-based power, a long-term power supply contract, possibly some of our own peaking power generation and distributed generation like the fuel cells and microturbines," says Hentz.

ECO and H Power will install the first of more than 40 beta, or second-generation, fuel cells starting this month.

Unlike the alpha units, the beta test units are very close in size, design, performance and location to the customer-ready commercial model that H Power will begin manufacturing next summer for delivery to electric co-ops by the fall. The 10 kw fuel cell, a size that will produce enough energy for the average home, will at first be priced at $8,000, but it is anticipated the price will drop to between $3,000 and $4,000 within a few years. The fuel cells will use propane or natural gas, and depending on the price of fuel, will produce electricity at 7.5 to 9.5 cents/kwh.

Editor's note:

There is much more going on in the co-ops' efforts to help their members cope with the deregulation of the industry, and certainly more than can be encapsulated in one article. Other co-ops are choosing other solutions, and we'll tell you about them in the January, 2001 issue of Illinois Country Living.

12 ILLINOIS COUNTRY LIVING NOVEMBER 2000

Power plants in miniature
How fuel cells work

Just think, you could have your own non-polluting electric generator in a box about the size of a small refrigerator. Fuel cells, like solar cells and wind generators, can generate electricity on a small scale for homes, businesses or remote locations. While fuel cells will require the processing of a fuel containing hydrogen, the fuel is not burned and the end products are electricity, water and heat. There is no pollution.

There are a number of fuel cell technologies in use or under development today - proton exchange membrane, phosphoric acid, molten carbonate, solid oxide and alkaline. For powering homes and small commercial facilities, the proton exchange membrane, or PEM, is proving to be the most practical technology. This is the type of fuel cell being developed by H Power and tested by electric cooperatives that are members of Energy Co-Opportunity (ECO).

The PEM fuel cell has four basic components. The fuel reformer extracts hydrogen from the fuel stock, which may be propane, natural gas, methanol, ethanol, or any other source of hydrogen molecules. The hydrogen is then fed to a fuel cell stack, where an electrochemical process creates electricity. The inverter converts the direct current created in the stack to alternating current.

Hydrogen produced in the reformer enters the fuel cell, which like a battery has a negative and a positive electrode. As hydrogen molecules, H2, are fed to the negative electrode, they split in two, forming protons and electrons. The electrons flow out of the fuel cell as electricity. The protons travel across the proton exchange membrane to the positive electrode, where they combine with oxygen brought into the fuel cell from the air. This chemical reaction creates molecules of water, which leave the fuel cell as a by-product, along with the heat generated in the fuel cell during its operation.

The heat can be used as part of a residential co-generation system to provide the total energy requirements for a home, including electric heat for space heating, and hot water, from a single input fuel.

Fuel cell advantages

• Environmentally friendly. With fuel cell technology, an electro-chemical process generates the electricity. There's no combustion, no burning and therefore no polluting emissions.

• Ideally suited for rural use. Since many fuel cells under development use propane or natural gas as a fuel stock, they are ideally suited for use in rural or remote locations.

Fuel cell applications

• Residential. Fuel cells are uniquely suited for providing power for off-grid locations where power lines are costly to build, like remote cabins, ranches or water wells. Fuel cells will also be widely accepted by "green power" enthusiasts, and can be used in the construction of new "smart homes."

• Businesses. Businesses can use fuel cells for standby or emergency use, or to run essential equipment such as computers during power outages.

• Utilities. Utilities can use fuel cells as an alternative to building line extensions, or to correct voltage levels and improve load flow or reliability.

• Fuel cells can be used for peak shaving and limiting demand, and will give utilities more options on power contract deals.

For more information go to:
www.e-coop.org.

NOVEMBER 2000 ILLINOIS COUNTRY LIVING 13